George PA Healy’s 1869 painting of Abraham Lincoln, the subject of George Saunders’s ‘wildly imaginative’ Lincoln in the Bardo.
Photograph: GraphicaArtis/Getty Images

This was the year in which George Saunders – long recognised as one of the masters of the short story – took on the novel. Lincoln in the Bardo (Bloomsbury £18.99), set in a Washington cemetery over the course of one tragic night, was a worthy winner of the Man Booker. Focusing on Lincoln’s grief at the death of his beloved son, Willy, the story is narrated by the carnivalesque ghouls who inhabit the graveyard. It’s as wildly imaginative and profoundly moving as anything I’ve read for a long time. Joining Saunders on the shortlist was another Great American Novel, Paul Auster’s 4321(Faber £20). While it wasn’t roundly praised by critics, it feels like the kind of book that will endure – so much of Auster’s extraordinary oeuvre comes together in this long and intricate tale, which manages to remain fresh and dazzlingly original.

Fiona Mozley’s first novel, Elmet (Hodder & Stoughton £10.99), was a surprise inclusion on the Man Booker shortlist, but it’s a cracking read. Darkly lyrical and full of violence, Mozley’s Yorkshire owes something to Ted Hughes, something to older, deeper folk tales and fables. She’s a name to watch. Another shortlisted book, Mohsin Hamid’s Exit West (Hamish Hamilton £14.99), casts a magical realist spell on the horrors of the migrant crisis, taking us into parallel worlds and through portals, the narrative strung between London, Greece and west‑coast America.

Two magnificent books missed the cut from longlist to shortlist on the Man Booker, but did find themselves on the Costa shortlist. Kamila Shamsie’s Home Fire(Bloomsbury £16.99), her seventh and best novel so far, is a retelling of Antigone set in a contemporary London riven with racial tensions. A heart-rending book that makes the political intensely, painfully personal. Jon McGregor’s Reservoir 13 (4th Estate £14.99) confirms him as one of our best novelists. It’s haunting and peculiar, a book that continues to rattle around in your head long after you put it down. A series of brilliant BBC radio broadcasts have been spawned from the novel, and it was also shortlisted for the Goldsmiths prize.

There were some superb novels that didn’t get picked up in the lottery of the literary prizes. Jennifer Egan’s Manhattan Beach (Corsair £16.99) tells a story of Depression-era New York through the waters that swirl around it, dredging up forgotten tales of the city’s maritime past. This is a book of epic sweep and ambition whose heroine, Anna, diving beneath the waves, is a memorable figure. Egan’s work has always been difficult to pin down, playing tricks with narrative conventions and the reader’s expectations. This feels like her most approachable novel so far, in places as daring and unusual as A Visit from the Goon Squad but with more of a story and a heart.

Amanda Craig’s The Lie of the Land (Little, Brown £16.99) is a knuckle-gnawing novel of marriage, money and country life. Witty, vicious, dark and unsettling, it’s a book that has finally propelled Craig to her rightful place at the top table of contemporary novelists. It manages at once to be blackly funny, deeply touching and full of edge-of-your-seat suspense. I’m not sure I’d read it straight after The Lie of the Land, but Katie Kitamura’s A Separation (Profile £12.99) presents a similarly bleak vision of married life. About the absences that lie at the heart of even the closest relationships, this novel matches its desolate subject matter with luminous, lapidary writing.

Salman Rushdie’s The Golden House is a ‘vivid and convincing’ portrait of contemporary America. Photograph: Rajanish Kakade/AP

If you’re looking for something a little more upbeat, Elizabeth Day’s The Party (4th Estate £12.99) starts off jolly enough – a group of well-heeled friends gathering for a 40th birthday celebration. Things sour quickly, though, and amid the champagne and cocaine the plot builds towards an almighty twist. Offering a nice transatlantic counterpoint to Day’s novel is Salman Rushdie’s The Golden House(Jonathan Cape £18.99), the tale of an immigrant family on the make in Obama’s America. Carrying whispers of The Bonfire of the Vanities and The Godfather, but still brilliantly, inimitably, a Rushdie novel, it’s one of the most vivid and convincing portraits of contemporary America I’ve read.

A new Alan Hollinghurst novel is always something to celebrate, but The Sparsholt Affair is a particularly joyful thing

There were a host of fine debut novels this year, not least among them Black Teeth and a Brilliant Smile (Wrecking Ball £12)by Adelle Stripe. The fictionalised story of the short life of playwright Andrea Dunbar, it’s a beautiful period piece of 1980s Britain, as funny and sad as anything by Dunbar herself. Elif Batuman’s first novel, The Idiot (Jonathan Cape £16.99), delighted me every bit as much as her earlier nonfiction book about Russian literature, The Possessed (2010). Her young Turkish heroine, Selin, manages to be both very clever and entirely naive. It’s worth searching out American War (Picador £14.99) by Omar El Akkad. Future dystopias always tell us a great deal about our most pressing contemporary anxieties and this is a novel that imagines the cracks currently emerging in US society widening into ravines. Also in translation (by Megan McDowell), Samanta Schweblin’s nightmarish Fever Dream (Oneworld £12.99) is a book to read in one frantic sitting – bold, uncanny and utterly gripping.

Finally, two books that ought to be on every prize shortlist next year. A new Alan Hollinghurst novel is always something to celebrate, but the sumptuous The Sparsholt Affair (Picador £20) is a particularly joyful thing. Funnier and lighter in touch than 2011’s The Stranger’s Child, but sharing many of its predecessor’s concerns about the passing of time and literary posterity, it’s hard to imagine anyone not loving this novel. The same might be said of La Belle Sauvage (David Fickling £20), Philip Pullman’s first book in his The Book of Dust trilogy. It’s a stunningly good read and shows that truly great literature renders questions of genre meaningless – this is not just a masterpiece of children’s fiction, it’s a masterpiece, full stop.

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This article was amended on 4 December 2017. It’s the French edition of American War by Omar El Akkad that is translated by Laurent Barucq; the original is published in English